Greuel: DWP held city hostage 'unnecessarily'

City Controller Wendy Greuel's said Thursday, in releasing her financial audit of the Department of Water and Power, that that the agency had enough money to make its budgeted $73.5-million transfer to the city treasury even without a rate increase. You'll remember that the DWP threatened to withhold payment until the City Council caved on a rate hike. “The DWP’s actions unnecessarily plunged the city into a fiscal crisis,” Greuel said. “We never should have been held hostage” by the DWP.

City Council President Eric Garcetti said in a statement, "DWP must be straight with its customers and the public. Their deception directly caused the city's credit rating to drop, putting taxpayers at risk for millions of dollars in extra interest payments. I asked for this audit so I'd have hard evidence of DWP's deceit. The DWP status quo must be broken, and it starts with my plan for a new, independent watchdog that answers to customers, not the company."

DWP general manager Austin Beutner replied, in part: "While we don’t wish to engage in an extended debate over the auditor’s findings, it appears there may be several errors of fact in the report."

Greuel's release and Beutner's full statement after the jump.

Greuel's release:

City Controller Wendy Greuel released an audit today of the Los Angeles Department of Water and Power’s (DWP) financial condition exposing that the Department did in fact have enough money to transfer the disputed $73.5 million to the City of Los Angeles. The Department also did not need a controversial Energy Cost Adjustment Factor (ECAF) increase to complete the Power Revenue Transfer.

“I can say with 100% certainty that the DWP did have the $73.5 million available to transfer to the City, and could have done so without putting itself in ANY financial jeopardy,” said City Controller Greuel. “My audit lays out in detail, that none of the reasons given by the DWP for refusing to transfer the money are supported by facts. As of April 1st, the DWP’s Power Revenue Fund had approximately $752 million dollars in it, more than enough money to transfer the $73.5 million to the City.”

The audit stems from the recent Energy Cost Adjustment Factor (ECAF) fiasco which left many questions about the DWP’s financial condition unanswered. On April 5th, 2010, the DWP sent a letter to Controller Greuel which presented 5 main reasons why it could not transfer the $73.5 million. To provide an independent assessment of the situation, the Controller commissioned a review to examine the DWP’s rationale and determine whether their reasons held up to scrutiny.

“It’s hard to look at these numbers and not say that the DWP was trying to extort the City Council into passing its proposed ECAF increase. This audit is clear, there needs to be greater transparency at the DWP. The insulated culture and the lack of accountability in the Department must change,” said City Controller Greuel. “The DWP has lost the trust of the public through this debacle and it will require dramatic steps over the coming months and years to rebuild the confidence of the ratepayers.”

Some of the specific findings of the audit include:

The DWP had done a financial projection without an ECAF increase and their own numbers showed they would be able to maintain their targeted fund balances even after completing a full Power Revenue Transfer to the City.

The DWP claimed that they needed to increase their Reserve Fund from $150 million to $300 million to maintain their bond rating. After reviewing credit rating analysis and documents from DWP’s own financial advisor, there is no evidence that having $300 million in their reserve fund is required to maintain their bond rating. Bond ratings take into account many factors, and are not based on one specific criterion.

The DWP also claimed they needed to maintain their bond rating for an upcoming $1.21 billion bond sale. They needed to sell these bonds to backfill their admitted practice of using operating revenue to pay for capital expenditures. This dangerous policy put the DWP at far greater risk than transferring $73.5 million to the City.

Beutner:

Since my appointment just weeks ago as General Manager of the Department of Water and Power, I have made it clear we are moving forward, not looking back.

We’ve put in place a plan to reduce costs in this budget year by $263 million and we have shared this plan with the City Council, our customers, and the community. These cost savings will help reduce rates.

Next week we will present our strategic plan, which will set forth our long-term priorities and identify the resources to pay for them.

We have begun an Operations and Financial Review with the goal of further reducing costs. This review will cover all business processes and operations including real estate, customer service, contracting practices, risk management, renewable energy investment, balance sheet, working capital and cash management, and information systems.

We will also present to our Board of Commissioners next week a concrete plan to establish a ratepayer advocate.

Our budget this year provides for a transfer to the City of Los Angeles of $254 million, which is 8 percent of Power revenues based on an agreement between the City of Los Angeles and the Department. This equates to $5.22 per month per customer for a typical residential power bill. We have budgeted for this amount and have rates approved to pay for it. If we are able to find a way to reduce rates (thereby reducing revenues) the amount of the transfer may be reduced as the 8 percent will be of a smaller number.

Since a draft of the report was first presented to Department staff yesterday morning, we are still reviewing it. While we don’t wish to engage in an extended debate over the auditor’s findings, it appears there may be several errors of fact in the report. The Department will also review the final report when we receive it.

We are committed to engaging in a constructive dialogue with the Mayor, City Council, our customers and the community and we look forward to further opportunities to discuss the steps being taken to improve transparency, reduce costs and improve operations at the Department of Water and Power.


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